Blockchain-based securities provide a new channel for aspiring investors and shareholders. While crypto coins attempt to provide an alternative currency, tokens cover all other uses. They can be used to fund a project, get company voting rights, redeem products and services, or simply trade and hold.
Tokens don’t come with their own blockchains – they’re usually tied to a coin and bought on exchanges. Due to this, the token purchasing process is streamlined and simple. Like other types of crypto, their Solidity contracts are visible to the public. Overall, the main difference lies in the economic model. Their behavior is simply different from a coin, due to the factors that contribute to the value of a token.
Price Discovery
Unlike mineable coins, which aren’t capped out per se, tokens are actually scarce. For this reason, if tied to a stablecoin, they are less dependent on power and hardware prices. On the other hand, a token is predictably valued based on the amount left available for purchase. Circulation doesn’t contribute significantly, at least until the supply is exhausted.
Tokens have more potential for profit if their value is propped up by actual uses. Governance tokens (LUNA, MKR) provide voting rights, much like stocks do in centralized companies. Utility tokens (GLM, BAT) can be exchanged for services, or finance a project in development in exchange for future merits.
Finally, the tokenomics are heavily dictated by the contract itself. The trading conditions, the total amount, any restrictions or limitations, launch fairness… A single parameter can turn the currency volatile. Tokens like SCRG (Scrooge Token) counteract this by simplifying price discovery, using a fair launch, utilizing predictable dynamics, and rewarding holders. As a result, they skyrocket quickly and maintain stable growth for extended periods of time.
The Safety of Your Investment
Security is a major concern in the world of DeFi, due to reduced customer protection and the irreversible nature of transactions. Your earnings may be threatened by scams or naturally occurring dumps. Of course, the first and the most important layer of defense is enclosed in the smart contract. Any bugs therein will permanently endanger the integrity of your holdings. Malicious inclusions are possible, such as restrictive selling conditions. This is related to the next point.
Rug pulls can be executed if the project founders own a large part of existing tokens, or have unrestricted access to the liquidity pool. They are easier to pull off if holders’ assets are frozen. This can be done through a voluntary offer, or through a built-in mechanism that’s already a part of the contract. But that’s not the only kind of dump that can happen. Volatility can cause one to occur even without developer participation. Small drops can escalate and gain momentum, causing more whales and holders to cash out, until the token dips. For this reason, holding must be encouraged and rewarded, and other stabilizing methods are required.
…And keep the money that you make
The inherent risks of crypto should not be underestimated. It’s never worth it to lose your entire savings on a gamble. And it’s never OK to be careless with your passwords, wallet numbers, and other typo-prone text fields. No one is safe, neither a newbie nor an experienced trader. Stay vigilant, be careful with your money, and good luck. Find the right token, get rich quick.